What’s up and down with Vanadium?
Vanadium, that little-known metal used mostly in the steel industry, saw a dramatic price increase from lows near US$ 2.50 per pound in 2016 to over US$ 30 per pound in late 2018 — a twelve-fold increase. And yet since November 2018 the price halved. It now stands around US$ 15.50 per pound and continues to tick down. What are the reasons propelling vanadium’s surge up and then down? And where might it go next?
Looking to China
The global supply of vanadium pentoxide, V2O5, the principal economic mineral form, is in the range of 150 kt/yr, containing just less than 85 kt/yr of vanadium, a relatively small and niche market. The Chinese produce around 55 kt/yr of vanadium, or 65% of the market. Like many other commodities, China controls price and demand through production or usage. The recent price spike and fall are related to the Chinese goal of improved safety of construction through the use of higher strength steel rebar. The addition of 0.2% vanadium to the steel alloy increases strength by 100% and reduces needed weight by up to 30%.
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The new Grade 3 steel rebar standard was initially introduced in 2012 with a grace period for implementation. The standard was again set for implementation in November 2018. This deadline brought buying into the market, lowered inventories and pushed prices higher. Current statistics indicate that 95% of the market is now producing at the new Grade 3 rebar standard. This uptake on the new standard suggests growth through demand for vanadium will come from the overall increase in steel use in a growing economy in China, expected at 6% y-o-y.
Other Chinese factors affecting vanadium supply are environmental concerns and regulations that are reducing internal supply as operations are put off line due to higher energy usage and related pollution. Local steel mills replace the iron source with vanadium-free seaborne ores. But they will still need vanadium for the steel alloy production thus creating a demand for non-Chinese sources. It is this overall growth and need for new sources that could be met by new overseas operations and by increases at the current primary producers.
The dramatic price rise did not result in significant increases in production due to the structure of the market. Most vanadium is produced as a byproduct of the iron ore industry. But it did create market interest for new vanadium exploration stories with several new startups, re-branding of projects in Nevada from uranium to vanadium plays, and renewed interest in Largo Resources, a primary producer in Brazil.
Building Large-Scale Batteries
Incremental demand is also coming from the renewables sector and the potential for large-scale storage using the Vanadium Redox Flow Battery (VRFB).
The battery makes use of vanadium’s unique four redox states, thus requiring only one element. The technology is well established. The VRFB holds unique advantages over other batteries including: the ability to be scaled to MW installations; long-life spans of 20 years with very high energy cycles and no charge loss over time; immediate and rapid energy release; a non-flammable material; suitability for grid connection or off grid use; and the ability to discharge 100% with no damage. This use only accounts for 1% of the current vanadium demand market now. But it provides a marginal increase that is attracting new entrants to the demand and investment side.
Vanadium’s near term looks positive, and probably less dramatic than 2018. Following China’s lead, relatively smaller countries with growing economies will use vanadium in similar ways to build smarter with stronger steel. Green energy interests may also continue to widen market demand for vanadium. Watching technological advancements for large-scale battery design will determine the vanadium advantage or not in this sector. All it takes is one major battery installation to turn this little-known metal back into a resource headline leader.
Ronald Wortel, MBA, P.Eng. is a mining investment professional with extensive experience in analysis of companies, projects and markets. He worked as both a sell-side ... <Read more about Ron Wortel>